Advising Clients since 1980
Estate Planning Basics
Estate planning offers an opportunity to ensure that your family and future generations are financially secure according to terms that you decide. Your careful decisions today can guarantee that your will is executed and your assets distributed according to your intentions. You can plan in such a way that your descendants avoid probate administration of your estate and your estate pays the minimum amount legally possible in estate taxes.
Proper planning can protect your estate, which is the total of all your assets and liabilities, including real estate, business interests, stocks, and personal property, from defaulting to the distribution scheme set forth by the laws of the state in which you live, and can smooth the distress surrounding your death or incapacitation. Although you may prefer not to think about a time when you will not be there for your family, estate planning can and should be rewarding and satisfying. Once you have completed your estate plan, you will know that you have provided for the people and causes you care about.
Estate Tax Exemptions & Rates
Estate planning can reduce or eliminate the amount of taxes that your estate must pay after your death. The amount protected from taxation, known as the lifetime exemption, is $1 million.
Prior to making any distributions to your beneficiaries, your estate will have to pay taxes on the amount that exceeds your lifetime exemption. The estate tax rates are currently 18-40% . The basic evaluation of your estate includes determining the fair market value of your current assets. Over time, your assets are likely to appreciate, which means that your estate tax liability will also increase.
Without proper estate planning, there can be a dramatic reduction of the value of the estate that your beneficiaries will actually receive after estate taxes are paid. Adequate planning is essential so that your assets are protected from taxation and are distributed according to your intentions.
Securing Your Legacy for Future Generations
There are many strategies you can use to plan your estate, depending largely on your total net worth and your relationship with the beneficiaries of your thoughtfulness. Here are some terms and concepts that will help you understand your estate planning options.
In today’s complex estate planning environment, it’s critical that affluent individuals have the benefit of best-in-class advice tailored to their needs.
Shoreline Wealth & Investment Management works with professionals to provide expert advice on tax-efficient wealth transfers, consistent with your personal values and goals. We can help you to:
• Integrate your estate plans with tax, investment, business, and insurance planning
• Develop plans to manage problems associated with a sizable inheritance
• Determine how to provide for future generations
• Utilize tax-efficient strategies to transfer your wealth
Working together, we can help you create a legacy that provides for your family and projects your values and vision across future generations.
Terms and Definitions
There are many strategies you can use to plan your estate, depending largely on your total net worth and your relationship with the beneficiaries of your thoughtfulness. Here are some terms and concepts that will help you understand your estate planning options.
Annual Gift Tax Exclusion: The federal government allows you to give any individual a present interest gift of up to $15,000 per year, without paying gift taxes. You must pay a gift tax or use your applicable exclusion amount on any gift that exceeds $15,000 to a single recipient or does not qualify for this exemption. To qualify, the recipient must have a “present interest” in the gift, which means that the recipient must legally be able to use the gift immediately. If you and your spouse make a gift together, you can each give $15,000 to each individual recipient, for a total tax-free gift of up to $30,000. Gifts that exceed $15,000 (or $30,000 from married couples) will count toward your lifetime exemption (see above).
Applicable Exclusion Amount, or Unified Credit Equivalent, or Lifetime Exemption: During your lifetime or following your death, you can transfer this amount to others (in the aggregate) without paying taxes. In 2021, this was $11,700,000 per person and $23,400,000 per couple.
Generation-Skipping Transfer Tax: The U.S. generation-skipping transfer tax (aka “GST tax”) imposes a tax on both outright gifts and transfers in trust to or for the benefit of unrelated persons who are more than 37.5 years younger than the donor or to related persons more than one generation younger than the donor, such as grandchildren. These people are known as “skip persons.” In most cases where a trust is involved, the GST tax will be imposed only if the transfer avoids incurring a gift or estate tax at each generation level.
Gift Tax Return: An annual gift tax return (Form 709) must be filed by April 15th of the year following the year in which a person makes any gift that is not fully sheltered by the gift tax annual exclusion. If a return is required, all gifts (including those falling within the $15,000 annual exclusion) must be reported, but an exclusion will be allowed (up to $15,000 per donee) for any gift that qualifies as a present interest gift. The total amount of taxable gifts in excess of the allowable annual exclusions will use up an equivalent amount of the donor’s lifetime exemption (currently $11,700,000), and if the lifetime exemption has already been fully used, the donor must pay a gift tax. A gift tax return is sometimes also filed to allocate the donor’s GST exemption to a gift to avoid a generation-skipping tax on the gift.
Trust: A trust is a legal entity that holds property on behalf of an individual, group, or other legal entity. The person who sets up the trust is the grantor, the person or group of people who manage the trust is the trustee, and those who benefit from the trust are the beneficiaries. Sometimes trusts are used as vehicles to avoid federal and state inheritance taxes. Other times, trusts are designed to ensure that the assets held in trust are used in a manner specified by the grantor.
Unlimited Marital Deduction: When a spouse dies, all of the couple’s assets can go to the surviving spouse without estate taxes. Unfortunately, this seemingly simple kind of transfer fails to take advantage of the lifetime exemption of the first spouse to die and can be a tax trap for the beneficiaries of the remaining spouse.
Specific Estate Planning Information & Strategies
If you have additional interest, please click on one of the following underlined links: 1) Estate Planning Strategies; 2) Wills; 3) Living Trusts; 4) Long-Term Trusts; 5) Offshore Trusts; 6) Private Annuity Trusts; 7) Gifting; 8) Valuation Discounts; 9) Business Transfer; and 10) Fiduciary Investing for more detailed information about each option.
Shoreline’s Competitive Edge
We are a network of independent professionals with over 150 years of combined experience in wealth management and advice. Members of this network can be used individually or collectively for a single program or a series of seminars or workshops for your company or organization.
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If you’d like more information about how diversified investment advisors can help you achieve your financial objectives through personalized wealth or retirement and risk management strategies, please contact us. We welcome the opportunity to discuss your unique needs and how we may best meet them.
This page is updated regularly so check in from time-to-time to see new articles and updates. You can click on any underlined words on each page to view a specific link or in the left margin of each page to explore a specific wealth management topic.
Charles M. Bloom, Registered Principal offers securities and advisory services through Centaurus Financial, Inc. - Member FINRA and SIPC - 775 Avenida Pequena, CA, 93111 (mailing address: 3905 State Street Suite 7173, Santa Barbara, CA, 93105) - CA Life Insurance License No. 0A52786 - Centaurus Financial, Inc. and Shoreline Wealth & Investment Management are not affiliated companies.
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